Bullish Medium-term Implications for Precious Metals from the U.S. Dollar

Recent situation in the currency markets is all that precious metals investors
like to see - for some time now we have been witnessing the strength in euro
and weakness in the U.S. dollar. Unfortunately, what we did not see was the
usual rally in gold, silver and other precious metals that normally accompanies
such a set-up. That is mainly due to the
unnatural state of correlations that we already discussed before.

But there were exceptions, such as the rally at the beginning of January,
sparked by a plunge in dollar. These exceptions are a good sign - a sign that
correlations are returning to what we are used to, i.e. negative correlation between
precious metals and dollar and positive one between stocks and precious metals.
Maybe a strong signal from the market is what is needed to push correlations
back to normalcy. For now, let's take a look where will the pressure from the
currency markets be and in which way gold, silver, and mining stocks will likely
move eventually.

The situation on the USD Index is interesting because of the unusual way 3
charts align to flash three different, yet consistent bearish signals. And
we believe that the subsequent moves downward are likely to eventually translate
into higher precious metals prices. Let us see why - we will start with the
short-term cart (charts courtesy of http://stockcharts.com.)

The index is now at its declining resistance line and cyclical turning point.
With the previous short term move to the upside, there is a bearish combination
in place and index values are likely to reverse right now since the
resistance line has been reached. This means that declines are likely to be
seen in the days ahead or at least very soon. The index has already declined
quite a bit on Friday, after two days of slightly higher prices.

To see what may follow from here, let us use an analogy to the beginning of
January that was already mentioned above. At the beginning of the year, the
USD Index moved to the declining resistance line - breaking it temporarily.
The breakdown was then invalidated, which caused gold and silver to soar. The
USD Index is once again at this resistance line and metals and miners once
again declined. The difference is, however, that the dollar index is now lower
and metals are higher. Miners are more or less at the same level.

Let's now have a look at the medium-term chart, as an important bearish pattern
has almost been completed there.

On the above chart we can see that the bearish short-term picture could easily
turn into a bearish medium-term outlook if the head-and-shoulders
pattern is completed here. A breakdown below the 79 level would accomplish
this and likely drive prices down to around $74, as indicated in the above
chart.

Finally, let us move on to the long term chart, as yet another bearish factor
is in play here, further strengthening the bearish outlook for the U.S. currency.

In this chart, we see that the USD Index is also at its very long-term resistance
line. This chart shows that we could very well see a bigger decline if the
index level does move below 79 and a move as low as 74 would not be all that
surprising, as mentioned before when analyzing the medium-term chart. This
move would be in tune with the completion of the aforementioned head-and-shoulders
pattern. And such a move would be very much in tune with this very long-term
chart as well.

Summing up, the short and medium and long-term outlooks are bearish
for the USD Index.

It is at the long-term and short-term declining resistance line and also at
a cyclical turning point after a short rally. Lower values are implied for
the weeks and months ahead, and the medium-term implications are bullish across
the whole precious metals sector. The short-term, however, can be volatile
even though the USD points to higher prices in the medium term.

Use the following link to sign up for a free, no-obligation trial of our Premium
Service and read the complete version of this study that is over 10 times bigger.
You'll also receive Market Alerts when things "get hot" on the precious metals
market and when the trial expires, you'll start receiving our free newsletter.
Additionally, you will also receive 12 gold
best practice emails.

Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who
takes advantage of the emotionality on the markets, and invites you to do
the same.

His company, Sunshine Profits, publishes analytical software that anyone can
use in order to get an accurate and unbiased view on the current situation.

Recognizing that predicting market behavior with 100% accuracy is a problem
that may never be solved, PR has changed the world of trading and investing
by enabling individuals to get easy access to the level of analysis that
was once available only to institutions.

High quality and profitability of analytical tools available at www.SunshineProfits.com are
results of time, thorough research and testing on PR's own capital.

PR believes that the greatest potential is currently in the precious metals
sector. For that reason it is his main point of interest to help you make
the most of that potential.

As a CFA charterholder, Przemyslaw Radomski shares the highest standards for
professional excellence and ethics for the ultimate benefit of society.

Disclaimer: All essays, research and information found above represent
analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates
only. As such, it may prove wrong and be a subject to change without notice.
Opinions and analyses were based on data available to authors of respective
essays at the time of writing. Although the information provided above is
based on careful research and sources that are believed to be accurate, Przemyslaw
Radomski, CFA and his associates do not guarantee the accuracy or thoroughness
of the data or information reported. The opinions published above are neither
an offer nor a recommendation to purchase or sell any securities. Mr. Radomski
is not a Registered Securities Advisor. By reading Przemyslaw Radomski's,
CFA reports you fully agree that he will not be held responsible or liable
for any decisions you make regarding any information provided in these reports.
Investing, trading and speculation in any financial markets may involve high
risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates
as well as members of their families may have a short or long position in
any securities, including those mentioned in any of the reports or essays,
and may make additional purchases and/or sales of those securities without
notice.